UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549


                                   FORM 10-QSB


                   (X) QUARTERLY REPORT PURSUANT TO SECTION 13
                                OR 15 (d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                  For the quarterly period ended: June 30, 2005

          ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                        For the transition period from to

                        Commission File Number: 000-30771


                           INTERACTIVE MOTORSPORTS AND
                               ENTERTAINMENT CORP.
               (Exact name of registrant as specified in charter)


                                     Indiana
         (State or other jurisdiction of incorporation or organization)

                                   87-0678630
                           (I.R.S. Employer I.D. No.)

               5624 West 73rd Street, Indianapolis, Indiana 46278
                    (Address of principal executive offices)

                                 (317) 295-3500
              (Registrant's telephone number, including area code)


Indicate by checkmark whether the Issuer: (1) filed all reports required to be
filed by section 13 or 15 (d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. (1)
Yes [x] No [] (2) Yes [x] No []

As of August 10, 2005, there were 92,815,910 (par value $0.0001) common shares
issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE: Exhibit Index on page 28.


<PAGE>

                    INDEX TO QUARTERLY REPORT ON FORM 10-QSB


                                                                            Page
Section                                                                   Number


NOTE ON FORWARD LOOKING INFORMATION............................................3
BASIS OF PRESENTATION..........................................................4

                                     PART I

Item 1.  Unaudited Financial Statements and Notes to Financial Statements
         Consolidated Balance Sheets at June 30, 2005 and December 31, 2004....5
         Consolidated Statements of Operations for the Three Months Ended
               June 30, 2005 and 2004..........................................7
         Consolidated Statements of Operations for the Six Months Ended
               June 30, 2005 and 2004..........................................8
         Consolidated Statement of Shareholders' Equity
               for the Six Months Ended June 30, 2005..........................9
         Consolidated Statements of Cash Flows for the Six Months
               Ended June 30, 2005 and 2004...................................10
         Notes to Consolidated Financial Statements...........................12
Item 2.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations................................................14
Item 3.  Internal Controls and Procedures.....................................25


                                     PART II

Item 1.  Legal Proceedings....................................................26
Item 2   Changes in Securities. ..............................................26
Item 3   Defaults Upon Senior Securities......................................26
Item 4.  Submission of Matters to a Vote of Security Holders..................26
Item 5.  Other Information....................................................26
Item 6.  Exhibits and Reports on Form 8-K.....................................26


SIGNATURES....................................................................27

EXHIBITS INDEX ...............................................................28

EXHIBITS......................................................................29




<PAGE>


                       NOTE ON FORWARD-LOOKING INFORMATION

This Form 10-QSB and other statements issued or made from time to time by the
Company or its representatives contain statements, which may constitute
"forward-looking statements" within the meaning of the Securities Act of 1933
and the Securities Exchange Act of 1934, as amended by the Private Securities
Litigation Reform Act of 1995, 15 U.S.C.A Sections 77z-2 and 78u-5. Those
statements include statements regarding the intent, belief, or current
expectations of the Company and members of its management team as well as the
assumptions on which such statements are based. All statements, trend analyses,
and other information contained in this report relative to markets for the
Company's products and/or trends in the Company's operations or financial
results, as well as other statements which include words such as "anticipate,"
"could," "feel(s)," "believes," "plan," "estimate," "expect," "should,"
"intend," "will," and other similar expressions, constitute forward-looking
statements and are subject to known and unknown risks, uncertainties and other
factors that may cause actual results to be materially different from those
contemplated by the forward-looking statements. Such factors include, among
other things: (i) general economic conditions that may impact the disposable
income and spending habits of consumers; (ii) the availability of alternative
entertainment for consumers; (iii) the ability of the company to obtain
additional capital and/or debt financing; (iv) the ability of the company to
control costs and execute its business plan.

The reader is cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, and that
actual results may differ materially from those contemplated by such
forward-looking statements. Important factors currently known to management that
could cause actual results to differ materially from those in forward-looking
statements are set forth herein. The Company undertakes no obligation to update
or revise forward-looking statements to reflect changed assumptions, the
occurrence of unanticipated events or changes to future operating results over
time.


<PAGE>


                              BASIS OF PRESENTATION

Effective August 2, 2002, Pacific International Holding, Inc., a Utah
corporation ("PIH"), which was originally organized in 1986, changed its state
of domicile and name by merging with and into Interactive Motorsports and
Entertainment Corp. (the surviving entity), an Indiana corporation (the
"Company"), pursuant to an Agreement and Plan of Reorganization. Per the merger
agreement, each share of PIH common stock outstanding immediately prior to the
effective date of the merger was cancelled and converted into four shares of
Interactive Motorsports and Entertainment Corp. common stock. Although it had
been in a variety of businesses for over 15 years, at the time of the merger,
PIH had limited operations.

Subsequent to the merger and effective as of the same date, the Company acquired
pursuant to a Plan and Agreement of Exchange all of the issued and outstanding
shares of common stock and preferred stock of Perfect Line, Inc., an Indiana
corporation ("Perfect Line"), from the Perfect Line shareholders in exchange on
a "share-for-share" basis for shares of the Company's common stock and preferred
stock. As a result of the share exchange, the Perfect Line shareholders held as
of August 2, 2002 Company shares representing approximately eighty-two percent
(82%) of the Company's capital stock. Also effective as of August 2, 2002, the
members of the Board of Directors of Perfect Line were elected to replace the
members of the Company's Board of Directors and the executive officers of
Perfect Line became the executive officers of the Company.

As Perfect Line had revenues, operations, and business activity, for financial
reporting purposes, Perfect Line is considered the acquirer, and therefore the
predecessor, and the Company is considered the acquiree for accounting and
reporting purposes. Due to the fact that the merger is being treated as a
reverse acquisition, the equity of the Company has been recapitalized for
financial reporting purposes. The operations of Interactive Motorsports and
Entertainment Corp. have been included in consolidation from August 2, 2002
through June 30, 2005.

All information in this Form 10-QSB is presented from the perspective of
Interactive Motorsports and Entertainment Corp. and its subsidiary Perfect Line
and not from the perspective of PIH.



<PAGE>


                                     PART I

Item 1. Condensed Financial Statements

        INTERACTIVE MOTORSPORTS AND ENTERTAINMENT CORP. AND SUBSIDIARIES
                           Consolidated Balance Sheets

<TABLE>
<CAPTION>

                                     ASSETS


                                                                 June 30, 2005               December 31, 2004
                                                                 -------------               -----------------
                                                                  (Unaudited)

<S>     <C>    <C>    <C>    <C>    <C>    <C>
Current Assets
Cash                                                                     $     349,084             $      1,334,673
Accounts Receivable                                                            633,501                      428,726
Inventory                                                                      357,277                      259,931
Prepaid Expenses                                                                 7,580                       35,490
                                                          ----------------------------- ----------------------------

Total Current Assets                                                         1,347,442                    2,058,820
                                                          ----------------------------- ----------------------------

Property and Equipment
Total Property and Equipment, Net                                              786,698                      764,796
                                                          ----------------------------- ----------------------------

Other Assets
Deposits                                                                        33,471                       42,001
Other Intangible Assets, Net                                                     4,192                       11,599
                                                          ----------------------------- ----------------------------

Total Other Assets                                                              37,663                       53,600
                                                          ----------------------------- ----------------------------
                                                          ----------------------------- ----------------------------

Total Assets                                                            $    2,171,803             $      2,877,216
                                                          ============================= ============================



The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>


<PAGE>


        INTERACTIVE MOTORSPORTS AND ENTERTAINMENT CORP. AND SUBSIDIARIES
                     Consolidated Balance Sheets (Continued)

<TABLE>
<CAPTION>

                                                       LIABILTIES AND SHAREHOLDERS' EQUITY (DEFICIT)

                                                                         June 30, 2005            December 31, 2004
                                                                         -------------            -----------------
                                                                           (Unaudited)

<S>     <C>    <C>    <C>    <C>    <C>    <C>
Current Liabilities
Accounts Payable                                                         $     549,897               $      418,815
Accrued Payroll Expense                                                         35,722                       67,385
Accrued Sales Tax Payable                                                       14,794                       26,722
Gift Cert. & Customer Deposits                                                  39,200                       42,888
Deposits on Simulator Sales                                                  1,190,729                    1,573,978
Accrued Liabilities                                                            941,158                    1,158,929
Deferred revenue                                                               123,557                       81,742
Notes Payable - Related parties                                                196,000                      186,537
Notes payable                                                                1,085,621                    1,061,651
                                                          ----------------------------- ----------------------------

Total Current Liabilities                                                    4,176,678                    4,618,647

                                                          ----------------------------- ----------------------------

Total Liabilities                                                            4,176,678                    4,618,647
                                                          ----------------------------- ----------------------------

Shareholders Equity (Deficit)
Common Stock                                                                     8,872                        8,772
Additional Paid in Capital                                                   4,839,985                    4,675,583
Retained Earnings                                                          (6,853,732)                  (6,425,786)
                                                          ----------------------------- ----------------------------

Total Shareholders Equity (Deficit)                                        (2,004,875)                  (1,741,431)
                                                          ----------------------------- ----------------------------


Total Liabilities & Equity (Deficit)                                    $    2,171,803               $    2,877,216
                                                          ============================= ============================

The accompanying notes are an integral part of these consolidated financial statements.

</TABLE>


<PAGE>

<TABLE>
<CAPTION>

        INTERACTIVE MOTORSPORTS AND ENTERTAINMENT CORP. AND SUBSIDIARIES
                      Consolidated Statements of Operations


                                                     For the 3 months ending              For the 3 months ending
                                                          June 30, 2005                        June 30, 2004
                                                     -------------------------           ---------------------------
                                                           (Unaudited)                          (Unaudited)

<S>     <C>    <C>    <C>    <C>   <C>   <C>
Revenues
   Company Store Sales                            $                   568,494        $                    1,266,640
   Revenue Share Sales                                                 77,509                               166,561
   Simulator Leases                                                    19,000                                50,625
   Sales of Simulator Systems                                         464,695                                     -
                                                     -------------------------           ---------------------------
          Total Revenues                                            1,129,698                             1,483,826
                                                     -------------------------           ---------------------------

Cost of Sales
   COGS - Merchandise                                                  51,310                                79,713
   Group Sales Expenses                                                 1,802                                 5,534
   COGS - Sale of Simulators                                          196,239                                     -
   Inventory Adjustments                                             (10,257)                                     -
                                                     -------------------------           ---------------------------
          Total Cost of Sales                                         239,094                                85,247
                                                     -------------------------           ---------------------------

Gross Profit                                                          890,604                             1,398,579
                                                     -------------------------           ---------------------------

General & Admin Expenses
   Payroll Related Expenses                                           511,320                               864,921
   Occupancy Expenses                                                 312,139                               570,833
   Other Operating Expenses                                           430,719                               427,989
                                                     -------------------------           ---------------------------
          Total Operating Expenses                                  1,254,178                             1,863,743
                                                     -------------------------           ---------------------------

Operating Profit (Loss)                                             (363,574)                             (465,164)
                                                     -------------------------           ---------------------------

          Interest Expense                                           (25,646)                             (102,348)
                                                     -------------------------           ---------------------------

Net Income (Loss) before Income Tax
Expense                                                             (389,220)                             (567,512)

          Income Tax Expense                                                -                                     -
                                                     -------------------------           ---------------------------


Net Income (Loss)                                 $                 (389,220)        $                    (567,512)
                                                     =========================           ===========================

Net Income (Loss) per share                       $                   (0.00)         $                       (0.01)
                                                     =========================           ===========================

Weighted Average Shares Outstanding                               88,265,361                             86,661,141
                                                     =========================           ===========================





                                                     For the 6 months ending               For the 6 months ending
                                                          June 30, 2005                         June 30, 2004
                                                     -------------------------           ----------------------------
                                                           (Unaudited)                           (Unaudited)
Revenues
   Company Store Sales                            $                 1,216,628        $                     2,718,762
   Revenue Share Sales                                                343,703                                273,160
   Simulator Leases                                                    19,000                                101,250
   Sales of Simulator Systems                                       1,225,801                                      -
                                                     -------------------------           ----------------------------
          Total Revenues                                            2,805,132                              3,093,172
                                                     -------------------------           ----------------------------

Cost of Sales
   COGS - Merchandise                                                 108,932                                161,079
   Group Sales Expenses                                                 5,463                                  9,075
   COGS - Sale of Simulators                                          542,788                                      -
   Inventory Adjustments                                             (10,257)                                      -
                                                     -------------------------           ----------------------------
          Total Cost of Sales                                         646,926                                170,154
                                                     -------------------------           ----------------------------

Gross Profit                                                        2,158,206                              2,923,018
                                                     -------------------------           ----------------------------

General & Admin Expenses
   Payroll Related Expenses                                         1,032,991                              1,741,734
   Occupancy Expenses                                                 614,098                              1,172,599
   Other Operating Expenses                                           827,094                                941,253
                                                     -------------------------           ----------------------------
          Total Operating Expenses                                  2,474,183                              3,855,586
                                                     -------------------------           ----------------------------

Operating Profit (Loss)                                             (315,977)                              (932,568)
                                                     -------------------------           ----------------------------

          Interest Expense                                          (111,969)                              (155,321)
                                                     -------------------------           ----------------------------

Net Income (Loss) before Income Tax
Expense                                                             (427,946)                            (1,087,889)

          Income Tax Expense                                                -                                      -
                                                     -------------------------           ----------------------------

Net Income (Loss)                                 $                 (427,946)        $                   (1,087,889)
                                                     =========================           ============================

Net Income (Loss) per share                       $                   (0.00)         $                        (0.01)
                                                     =========================           ============================

Weighted Average Shares Outstanding                               87,992,153                              86,383,101
                                                     =========================           ============================



The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>


<PAGE>

<TABLE>

        INTERACTIVE MOTORSPORTS AND ENTERTAINMENT CORP. AND SUBSIDIARIES
            Consolidated Statement of Shareholders' Equity (Deficit)
<CAPTION>

                                                                                         Additional                           Total
                                       Preferred Stock              Common Stock         Paid-In        Retained       Shareholders'
                                      --------------------      -------------------
                                   Shares          Amount       Shares       Amount      Capital        Deficit     Equity (Deficit)
                                   -------         ------       -------      ------      --------       --------      --------------

<S>        <C> <C>             <C>           <C>              <C>           <C>               <C>              <C>               <C>
Balance at
  December 31, 2003            2,272,728     $     227      74,314,183    $  7,431    $  4,029,002     $ (6,434,655)    $(2,397,995)

Common stock issued for
  2003 Bridge Loan Interest            -             -         935,726          94          78,112                -           78,206

Common stock issued
  for services                         -             -         260,000          26          17,248                -           17,274

Conversion of preferred
  stock to common stock      (2,272,728)          (227)     11,363,640       1,136            (909)               -                -

Fair value of options and
   warrants granted                    -             -               -           -         436,595                -          436,595

Common stock issued
 for payment of prior year
 year accruals                         -             -         842,361          84         115,535                -          115,619

Net income for the year
  Ended December 31,
   2004                                -             -               -           -               -            8,869            8,869
                             -----------    ------------    ------------   ---------     -------------    -------------     --------

Balance at
  December 31, 2004                    -             -      87,715,910        8772       4,675,583       (6,425,786)     (1,741,431)
                             -----------    ------------    ------------   ---------     -----------    -------------    -----------

Fair value of warrants
  granted (unaudited)                  -             -               -               -      55,233                -           55,233

Common stock issued
  for services (unaudited)             -             -        1,000,000        100          69,900                -           70,000

Fair value of warrants
  granted (unaudited)                  -             -               -          -           39,269                -           39,269

Net income (loss) for the period
  Ended June 30, 2005 (unaudited)      -             -               -          -               -        (427,946)         (427,946)
                             -----------    ----------    ------------   ---------     -------------    -------------    -----------

Balance at
  June 30, 2005 (unaudited)            -    $        -      88,715,910   $   8,872     $ 4,839,985    $  (6,853,732)    $(2,004,875)
                             ===========    ==========    ============   =============   ==========    =============    ============

The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>


<PAGE>

<TABLE>
<CAPTION>

        INTERACTIVE MOTORSPORTS AND ENTERTAINMENT CORP. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                                   (Unaudited)

                                                                                     For the Six Months Ended
                                                                                             June 30
                                                                                    2005                     2004
                                                                            --------------------     --------------

CASH FLOWS FROM OPERATING ACTIVITIES

<S>                                                                            <C>                 <C>
   Net loss                                                                    $      (427,946)    $    (1,087,889)
   Adjustments to reconcile net loss to net cash used
     by operating activities:
     Depreciation and amortization                                                     171,698             189,786
     Common stock issued for services                                                   70,000               3,462
     Common stock issued for interest                                                        -              25,000
     Warrants issued related to sales agreements                                        94,502                   -
     Amortization of notes payable discount                                             51,812              67,792
   Net changes in operating assets and liabilities:
     (Increase) decrease in trade accounts and other receivable                       (204,775)           (78,721)
     (Increase) decrease in inventory                                                  (97,346)             25,471
     (Increase) decrease in prepaid expenses and other assets                           27,910               (333)
     (Increase) decrease in deposits                                                     8,530             (2,036)
     Increase (decrease) in accounts payable                                           131,082             109,549
     Increase (decrease) in accrued payroll and payroll taxes                          (31,663)           (40,989)
     Increase (decrease) in sales tax payable                                          (11,928)           (18,115)
     Increase (decrease) in gift certificates and customer deposits                     (3,688)           (13,293)
     Increase (decrease) in accrued expenses                                          (217,771)            111,442
     Increase (decrease) in deferred revenue                                            41,815                   -
     Increase (decrease) in deposits on simulator sales                              (383,249 )            338,678
                                                                            ------------------- ------------------

       Net Cash Used by Operations                                                    (781,017)          (370,196)
                                                                            ------------------ -------------------

CASH FLOWS FROM INVESTING ACTIVITIES

   Purchase of property and equipment                                                 (775,189)          (183,848)
   Sale of property and equipment                                                      588,996                  -
                                                                            -------------------        -----------

       Net Cash Used by Investing Activities                                          (186,193)          (183,848)
                                                                            ------------------ -------------------

CASH FLOWS FROM FINANCING ACTIVITIES

   Loans from and (repayments to) related parties                                            -            (50,000)
   Proceeds from issuance (payment) of notes payable                                  (18,379)             604,000
                                                                            ------------------- ------------------

       Net Cash Provided (Used) by Financing Activities                               (18,379)             554,000
                                                                            ------------------  ------------------

DECREASE IN CASH AND CASH EQUIVALENTS                                                 (985,589)               (44)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                       1,334,673             249,005
                                                                            ------------------  ------------------

CASH AND CASH EQUIVALENTS, END OF PERIOD                                    $          349,084  $          248,961
                                                                            ==================  ==================


The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

<PAGE>

<TABLE>
<CAPTION>

        INTERACTIVE MOTORSPORTS AND ENTERTAINMENT CORP. AND SUBSIDIARIES
                Consolidated Statements of Cash Flows (Continued)
                                   (Unaudited)


                                                                                   For the Six Months Ended
                                                                                           June 30,
                                                                               2005                     2004
                                                                            ---------------      -----------------


<S>     <C>    <C>    <C>    <C>    <C>    <C>
SUPPLEMENTAL CASH FLOW DISCLOSURES:

   Cash paid for interest                                                   $           37,886  $           49,614
   Cash paid for income taxes                                               $                -  $                -

SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:

   Common stock issued for services                                         $          70,000-  $            3,462
   Common stock issued for accrued liabilities                              $                -  $          115,620
   Accrued interest converted to notes payable                              $                -  $              250
   Discount on convertible notes                                            $           51,812  $          276,122
   Common stock issued for capitalized loan fees                            $                -  $           15,000
   Warrants issued related to sales agreements                              $           94,502  $                -


The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

<PAGE>

        INTERACTIVE MOTORSPORTS AND ENTERTAINMENT CORP. AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                      March 31, 2005 and December 31, 2004


NOTE 1 -      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a.       Unaudited Interim Financial Information

              The accompanying unaudited condensed consolidated balance sheets
              of Interactive Motorsports and Entertainment Corp. (the "Company")
              at June 30, 2005 and December 31, 2004, the unaudited consolidated
              statements of operations for the three months ended June 30, 2005
              and 2004, and the unaudited consolidated statements of operations
              and statements of cash flows for the six months ended June 30,
              2005 and 2004 have been prepared by the Company's management and
              do not include all the information and notes to the financial
              statements necessary for a complete presentation of the financial
              position, results of operations, and cash flows in conformity with
              generally accepted accounting principles. In the opinion of
              management, all adjustments necessary for a fair presentation of
              the results of operations and financial position have been
              included and all such adjustments are of a normal recurring
              nature. Although management believes the disclosures are adequate
              to make the information presented not misleading, it is suggested
              that these condensed consolidated financial statements be read in
              conjunction with the audited financial statements and the notes
              thereto included in the Company's latest annual financial
              statements included in the Company's annual report on Form 10-KSB.
              The results of operations for the six months ended June 30, 2005
              are not necessarily indicative of the results that may be expected
              for the full year ending December 31, 2005 or any future period.

b.       Use of Estimates

              The preparation of financial statements in conformity with
              accounting principles generally accepted in the United States of
              America requires management to make estimates and assumptions that
              affect the reported amounts of assets and liabilities and the
              disclosure of contingent assets and liabilities at the date of the
              financial statements and the reported amounts of revenues and
              expenses during the reporting period. Actual results could differ
              from those estimates.

c. Accounting for the sale of simulators

              The Company records the sale of simulators using the percentage of
              completion method of accounting. The percentage of completion for
              any given sales contract is determined by the ratio of costs
              incurred to date to the total estimated cost for each site build.
              Costs incurred consist of purchased components, outside services,
              and outside contract labor cost.

NOTE 2 -      DEBT AND CREDIT ARRANGEMENTS

              Pursuant to the Note and Option Purchase Agreement and Security
              Agreement dated February 2, 2004 ("Agreement"), the Company issued
              notes bearing an interest rate of 9.6% payable in the total amount
              of $750,000. These notes were issued between February 2, 2004 and
              June 6, 2004. Each note came with an option to purchase common
              shares of the Company equal to the amount of notes purchased
              divided by the fair market value of the Company's stock on the
              date of issuance. The notes became due on February 2, 2005, and
              $260,000 of the notes was paid in full at that time. A note holder
              of an additional $344,000 of the notes elected to exercise options
              granted with the note purchase for full payment of the
<PAGE>

              notes per the terms of the Agreement. The note holder of the final
              $146,000 in notes has agreed to extend the maturity date of their
              note to December 31, 2005, with the expiration of the accompanying
              option to February 1, 2006.

              The value of the options were amortized to interest expense over
              their life which expired March 1, 2005. Amortization of option
              discount of $51,812 was included in interest expense for the six
              months ended June 30, 2005.

NOTE 3 -       SIMULATOR SALE AGREEMENTS

               On December 31, 2004, the Company entered into an Asset Purchase
               Agreement pursuant to which it sold thirty-four (34) of its
               existing race car simulators to Race Car Simulation Corporation
               ("RCSC"), a wholly owned subsidiary of Dolphin Direct Equity
               Partners, LP ("Dolphin"). The Agreement also granted RCSC an
               option to purchase an additional ten (10) new race car simulators
               for an aggregate purchase price of $1,320,000. On April 15, 2005,
               the Company and RCSC entered into a Third Asset Purchase
               Agreement whereby the Company received the proceeds from the sale
               of six of the ten additional race car simulators referenced above
               for an aggregate purchase price of $600,000. The Third Agreement
               also called for the Company to issue 900,000 warrants as part of
               the transaction.

                The sale of the 6 new simulators in the Third Agreement occurred
                prior to the completion of the installation process, and was
                recorded using the percentage of completion method.
                Additionally, the issuance of the warrants was recorded in the
                current period. The portion of the sale proceeds that could not
                be recorded on the Income Statement was recorded on the Balance
                Sheet as an increase to Deposits on Simulator Sales, and will be
                recorded on the Income Statement when the installation is
                complete. The Company currently has $1,190,729 in Deposits on
                Simulator Sales that will be recorded on the Income Statement
                upon completion of the installations.





<PAGE>

Item 2. Management's Discussion and Analysis of Financial Condition and Results
        of Operations

The following discussion and analysis provides information that we believe is
relevant to an assessment and understanding of the consolidated results of
operations and financial condition of the Company. The terms "Company", "we",
"our" or "us" are used in this discussion to refer to Interactive Motorsports
and Entertainment Corp. along with Interactive Motorsports and Entertainment
Corp.'s wholly owned subsidiary, Perfect Line, Inc., on a consolidated basis,
except where the context clearly indicates otherwise. The discussion and
information that follows concerns the Registrant as it exists today, as of this
filing, including the predecessor of the Company's operations, Perfect Line,
LLC. This discussion and analysis does not relate to the operations of Pacific
International Holding, Inc. which had limited operations prior to the merger
with the Company on August 2, 2002.

Overview

Interactive Motorsports and Entertainment Corp. ("IMTS" or the "Company"), an
Indiana corporation, through its wholly owned subsidiary, Perfect Line, Inc., is
a world leader in race simulation that owns and operates racing centers, leases
or revenue shares with third party operators and sells race car simulators.
NASCAR Silicon Motor Speedway ("NSMS") customers experience driving in a NASCAR
race car that simulates the motion, sights and sounds of an actual NASCAR event.
Located in high profile, high traffic locations, the Company's racing centers
range from 2 to 12 race car simulators per location and many sites offer what
the Company believes to be the best selling NASCAR driver merchandise available
to the market.

In July of 2003, management revised the Company's business model, changing the
focus from Company owned and operated mall-based racing centers to revenue share
racing centers (mall merchandise retailers, family entertainment centers,
amusement parks, casinos, auto malls, etc.) and mobile lease programs such as
the Nextel Experience. In February, 2004, Nextel debuted The Nextel Experience,
a mobile fan interactive experience that features six of the Company's race
simulators. Nextel has subsequently taken delivery of three additional
2-simulator mobile experiences that they use for promotional events that feature
the Company's simulators.

The change in the business model, and particularly the sale of simulators as
outlined in Note 3 of the financial statements above, allowed the Company to
generate three consecutive quarters of operating profit and positive Earnings
Before Interest, Taxes, Depreciation and Amortization ("EBITDA"), its first
quarterly net profit in the fourth quarter of 2004 and its first annual profit
in the year ending December 31, 2004. The loss reported in the quarter ending
June 30, 2005 is due in part to several installations that did not progress as
quickly as expected, and therefore are not reflected in the financial
performance for the period. However, the financial performance for the three and
six months periods ending June 30, 2005 improved significantly over the same
periods in 2004. With $1,190,729 in Deposits on Simulator Sales, management
feels confident that the Company's financial performance will get back on track
in subsequent quarters in 2005, although there can be no assurance.

Since inception on May 31, 2001 and through June 30, 2005, the Company has
accumulated aggregate losses totaling $(6,853,732), which includes the net loss
of $(427,946) for the six months ending June 30, 2005, the net profit of $8,869
for the twelve months ended December 31, 2004, the net loss of $(3,525,581) for
the twelve months ended December 31, 2003, the net loss of $(2,189,220) for the
twelve months ended December 31, 2002 and the net loss of $(719,854) for the
period from inception to December 31, 2001.
<PAGE>

The Company has funded its retained losses through the initial investment of
$650,000 in May 2001, $400,000 of capital contributed in February 2002,
approximately $2.6 million received in August 2002 from the sale of Preferred
Stock, $700,000 borrowed in March 2003, $604,000 in net proceeds borrowed
between February 2004 and June 2004, $290,000 in net proceeds borrowed in June,
2005, $1.929 million received in the form of deposits for the placement of race
car simulators in revenue share locations, or for the future purchase by third
parties of race car simulators, and $1,089,654 by delaying payments to its
vendors. See further discussion under "Liquidity and Capital Resources" and
"Risk Factors" below.

During the six months ended June 30, 2005, the Company had total revenues of
$2,805,132 compared to $3,093,172 for the six months ended June 30, 2004. Sales
performance resulted in a net loss of approximately $428,000 for the 6 month
period, an improvement of almost $660,000 over the loss incurred during the same
period in 2004. Performance for the three months ending June 30, 2005 resulted
in a loss of $389,220 on revenue of approximately $1.13 million, as compared to
the loss of $567,512 on sales of approximately $1,484,000 for the three month
period ending June 30, 2004 The decrease in revenue, for both the quarter and
the six month period ending June 30, 2005 was expected, and is due primarily to
the Company's migration from a business model focusing on Company owned stores,
to one that focuses on revenue sharing Company owned simulators with store
operators, and selling Company owned simulators to investors or to store
operators. As of June 30, 2004, only three of the stores the Company used to own
and operate had been converted to Checker Flag Lightning, Inc. revenue share
locations, whereas by June 30, 2005, all the stores slated for conversion have
either been converted to Checker Flag Lightning, Inc. revenue share locations or
have been relocated or closed under arrangements with the respective landlords
that management believes are favorable to the Company. This has resulted in the
Company recognizing just a portion of the revenue generated by the location as
revenue share income, with little related expense, rather than recognizing all
the revenue generated at a location, but also recognizing the payroll, rent and
operating expenses associated with the location. The resultant reduction in
revenue from store sites for the six month period ending June 30, 2005 was
partially offset by the $464,695 increase in sales of simulator systems to Race
Car Simulation Corp., I-Vision Technology, and to Ft. Gordon, GA.

On December 31, 2004, the Company sold 34 of its simulators to Race Car
Simulation Corporation. The 34 simulators that were sold were in existing
revenue share or lease agreements, and therefore the Company's cash flow was
reduced accordingly. Since the sale, the Company has installed 10 simulators in
revenue share locations and has installed 2 leased simulators. An additional 13
simulators are in process for either revenue share, lease or purchase
agreements, and the Company has an additional 21 simulators in inventory that
are available for installation but have not been designated to a new site.
Management expects that the continued combination of revenue share, lease and
purchase agreements for the current inventory of simulators will return the
Company to the operating profits it achieved over three consecutive quarters,
although there can be no assurance.

The Company has established four primary sources of revenues: (i) company owned
and operated racing centers; (ii) lease/revenue share arrangements of two types
- (a) new facility operators for new locations, and (b) new facility operators
to assume the Company's operations under presently existing Company locations;
(iii) new operators for mobile lease arrangements such as with the Nextel
experience; and (iv) simulator equipment sales. A brief description of each of
those is listed below.


<PAGE>
<TABLE>
<CAPTION>

Locations


Company Owned (24 Simulators):
              Location                     Market              Sq. Ft.          Simulators
       --------------------         -------------------     -----------         ----------
<C>                                                            <C>              <C>
1)       Mall of America            Minneapolis, MN            5,899            12 race cars
2)       Universal CityWalk         Los Angeles, CA            5,000            12 race cars


Revenue Share (120 Simulators):

             Location                      Market              Sq. Ft.          Simulators
     ----------------------         -------------------     -----------         ----------
1)       Opry Mills                 Nashville, TN              6,007            10 race cars
2)       Gurnee Mills               Chicago, IL                6,111             6 race cars
3)       Concord Mills              Charlotte, NC              7,865            12 race cars
4)       Mall of Georgia            Atlanta, GA                5,895             8 race cars
5)       Riverchase Galleria        Birmingham, AL             6,188             8 race cars
6)       RiverTown Crossing         Grand Rapids, MI           6,100             8 race cars
7)       Jordan Creek Town Ctr      Des Moines, IA             4,000             8 race cars
8)       NASCAR SpeedPark           Sevierville, TN            1,584             6 race cars #
9)       NASCAR SpeedPark           St. Louis, MO              1,496             6 race cars #
10)      NASCAR SpeedPark           Toronto, Canada            1,500             6 race cars #
11)      NASCAR Speedpark  (a)      Myrtle Beach, SC           1,600             6 race cars #*
12)      Gate A Sports              Cleveland, OH              2,470             5 race cars
13)      Playcenter (c)             Sao Paulo, Brazil          1,000             4 race cars*
14)      Burdick Driver's Village   Syracuse, NY               3,472             8 race cars #
15)      Big River Entertainment (b)Memphis, TN                5,000            12 race cars*
16)      Bass Pro Shop              Harrisburg, PA               500             2 race cars
17)      Bass Pro Shop (b)          Clarksville, IN              750             3 race cars
18)      University Mall            Burlington, VT              3700             5 race cars
19)      Quaker Steak & Lube (a)    Sheffield, OH                500             2 race cars*
20)      Quaker Steak & Lube (a)    Erie, PA                     500             2 race cars*

        a. Scheduled to open Q3
        b. Scheduled to open Q4
        c. Scheduled to open TBD


Mobile Units (16 Simulators):

1) Nextel Mobile Experience         2004-06 NASCAR Nextel Cup series events      6 race cars#
2) Perfect Line/NTI Experience      Joint Venture Mobile Experience              2 race cars
3) Nextel Mini Experiences          Nextel regional marketing                    6 race cars #
4) DaimlerChrysler                  Frankfurt Motor Show                         2 race cars*
</TABLE>

Sales of Simulators (21 Simulators):

        Buyer                   Market                    Simulators
       --------                 ------                    ----------
1)   Roltex                Moscow, Russian Federation     8 race cars *
2)   Tonne Mgmt            Wisconsin Dells, WI            4 race cars *
3)   Ft. Gordon            Ft. Gordon, GA                 2 race cars
4)   I-Vision Tech.        Abu Dhabi, UAE                 4 race cars
5)   I-Vision Tech.        Abu Dhabi, UAE                 2 race cars
6)   Fun City              Burlington, IA                 1 race car*

# Denotes asset sold to Race Car Simulation Corporation
* Denotes that simulators are not yet installed
<PAGE>

NSMS racing centers were originally owned and developed by Silicon
Entertainment, Inc. ("SEI"). SEI opened its first site in August 1997 at the
Mall of America in Bloomington, Minnesota, the largest mall in the United
States. SEI raised large sums of initial capital, of which, according to SEI
internal documents, approximately $6.5 million was utilized to create its
proprietary software technology and approximately $25 million was utilized to
produce approximately 170 simulators and complete the build-out of 15 stores in
high traffic malls. SEI was unable to secure additional long term financing to
support its capital expansion, and was liquidated through Chapter 7 bankruptcy
in April 2001. Perfect Line's assets were primarily acquired from creditors of
SEI. As a result of SEI's bankruptcy, Perfect Line was able to purchase the
assets of SEI at a price substantially below SEI's cost.

Perfect Line, LLC, a predecessor to Perfect Line, Inc., re-opened 12 of the
racing centers, which utilized 136 of the simulators, between July 2001 and
August 2002. The Company then warehoused 32 simulators for future deployment and
2 simulators are used for research and development purposes at the Company's
technology center in Santa Clara, California. The proprietary technology
includes two U.S. Patents, which combine to create what management believes to
be one of the world's most realistic simulations of the sights, sounds and
motions experienced by driving in an actual NASCAR race. The proprietary
motion-based platform that the race car simulator is mounted on is among the
other assets that were acquired and licensed as part of the transaction.

In August 2002, Perfect Line became a wholly owned subsidiary of IMTS, through
an exchange of shares that resulted in Perfect Line shareholders owning
approximately 82% of IMTS equity. Simultaneous with this event, approximately
$2.6 million in private equity financing was made available to Perfect Line.
Approximately one-half of the funding was used to retire the Company's bank note
and the balance was used for working capital.

In July of 2003, management revised the Company's business model, changing the
focus from Company owned and operated mall-based racing centers to revenue share
racing centers (mall merchandise retailers, family entertainment centers,
amusement parks, casinos, auto malls, etc.) and mobile lease programs such as
the Nextel Experience and simulator sales. Without the burden of occupancy costs
and labor costs, management believes the current business model has proved
successful as indicated by the Company's string of three straight quarters of
operating profits and positive EBITDA through the quarter ending March 31, 2005,
the first quarterly net profit for the quarter ended December 31, 2004, as well
as its first net profit for the year ending December 31, 2004. On December 31,
2004, the Company entered into an Asset Purchase Agreement pursuant to which it
sold thirty-four (34) of its existing race car simulators to Race Car Simulation
Corporation ("RCS"), a wholly owned subsidiary of Dolphin Direct Equity
Partners, LP ("Dolphin") for an aggregate purchase price of $1,536,600. The
Agreement also granted RCS an option to purchase an additional ten (10) new race
car simulators for an aggregate purchase price of $1,320,000. On March 31, 2005,
the Company and RCSC entered into a Second Asset Purchase Agreement whereby the
Company received the proceeds from the sale of four of the ten additional race
car simulators for an aggregate purchase price of $720,000. On April 15, 2005,
the Company and RCSC entered into a Third Asset Purchase Agreement whereby the
Company received the proceeds from the sale of the remaining six of the ten
additional race car simulators referenced above for an aggregate purchase price
of $600,000. The March 31, 2005 and April 15, 2005 simulator sales transactions
completed the exercise of RCS's option stemming from the December 31, 2004
simulator sale. Due to third party construction delays, the installation of the
final six simulators at Myrtle Beach had not occurred prior to the quarter
ending June 30, and therefore only a portion of this sale was recorded in this
quarter per the Company's accounting policy on recording simulator sales. Had
the simulators been booked as scheduled within the quarter, the loss for the
quarter would have been reduced by approximately $176,000. The Company currently
has $1,190,729 in Deposits on Simulator Sales that will be fully recorded on the
Income Statement upon completion of the installations.

<PAGE>

The Company's Current Operations, Recent Developments and Plan for the Future

The Company's primary focus is to leverage the Company's ownership of its
internationally unique, proprietary race car simulation technology and create
the largest network of officially-licensed, NASCAR-branded entertainment centers
in the world. The Company believes that this can be done profitably through a
combination of owned and operated racing centers, third party revenue share
locations (family entertainment centers, amusement parks, casinos, auto malls,
etc.), mobile unit leases and the domestic and international sales of the race
simulator product.

NASCAR racing is currently the #1 spectator sport in America. The Company has an
exclusive license agreement with NASCAR for location-based entertainment, which
includes the right to use the NASCAR name within the Silicon Motor Speedway
logo, on racing center signage, within collateral sales materials, on the NSMS
web site, and within the NSMS racing simulator software. The Company has also
secured licenses with many popular racetracks in the United States, and the cars
driven by many of the race fans' favorite Nextel Cup teams and drivers, ranging
from established stars such as Dale Earnhardt, Jr., Tony Stewart and Mark
Martin, to rising stars like Matt Kenseth and Kurt Busch. These licensing
agreements and the use of NASCAR related identities and marks provide immediate
name recognition, credibility, and authenticity to NSMS.

The Company has integrated these license agreements with sophisticated
proprietary racing simulator technology to create a network of NASCAR-themed,
family-oriented, racing entertainment and retail merchandise centers. Many
racing centers are in some of America's premier shopping malls, giving us access
to over 160 million annual site visits from potential customers.

Simulator races take place on famous NASCAR Nextel Cup racetracks such as
Daytona International Speedway, Indianapolis Motor Speedway, Lowe's (Charlotte)
Motor Speedway, Atlanta Motor Speedway, Bristol Motor Speedway, and Richmond
International Raceway.

NSMS owned Racing Centers, as well as many of its revenue share Racing Centers,
are operated as combined racing entertainment and retail merchandise stores. In
addition to providing customers with the opportunity to drive Nextel Cup race
cars, NSMS Racing Centers also feature a large selection of officially-licensed
NASCAR merchandise. Research indicates that NASCAR fans buy more merchandise
than fans from almost any other sport and they are also the most brand-loyal.
These characteristics helped boost worldwide NASCAR-branded retail sales from
approximately $82 million in 1990 to $2.1 billion in 2004. The Company's NSMS
racing centers are the largest network of officially licensed, NASCAR-branded
interactive entertainment stores in the world, and offer its customers the most
popular NASCAR merchandise available. Although the Company's owned locations
provide its only direct means to generate revenues from merchandise sales, the
Company's experience has been that increases in merchandise sales have a
spillover effect on the level of simulator revenue each site generates. The
Company does not receive any payments from the revenue share sites for
merchandise sales. With these factors in place, the Company believes it is
well-positioned to capitalize on this billion-dollar market.

Tony Stewart, 2002 NASCAR Nextel Cup Champion and current NASCAR Nextel Cup
points leader, has been the spokesman and technical advisor for NASCAR Silicon
Motor Speedway. He has been featured in promotions, advertising and
point-of-sale material and also has made appearances at NSMS racing center
locations throughout the country.

The Company first tested the revenue share business model with the Burroughs and
Chapin Company of Myrtle Beach, South Carolina, by installing 6 simulators at
their Smokey Mountain NASCAR SpeedPark in April of 2003, and 5 simulators at
their Myrtle Beach Pavilion Amusement Park's Ocean Front Arcade in May of 2003.
The results of these two revenue share racing centers inspired management to

<PAGE>

revise the Company's business model beginning in July of 2003, changing the
focus from Company owned and operated racing centers to revenue share racing
centers located within malls, family entertainment centers, amusement parks,
casinos, auto malls, etc. Revenue share locations will provide IMTS the
opportunity to install simulators in existing or planned entertainment venues
and share proportionately in the sales generated with owner-operators. The
Company provides the simulators at cost (expected to be financed through a third
party leasing firm, although no agreements have been reached) and the host
organization (owner-operator) provides the space, required site build-out, and
day-to-day operations staffing.

The Company and Checker Flag Lightning of Grandville, Michigan, tested the
conversion of one of the Company's mall racing centers to a Checker Flag
Lightning retail merchandise and entertainment center beginning in November of
2003. The lease at the racing center within RiverTown Crossing in Grandville,
Michigan was assigned to Checker Flag Lightning and the store was remodeled by
reducing the number of simulators to 8 from 10, and building out the retail
merchandise space to fill nearly half of the 6100 square feet with NASCAR
merchandise. This model led to an agreement with Checker Flag Lightning in March
of 2004 to assign six of the Company's mall leases with the intent to convert
each of them to the new mall model. In addition, Checker Flag Lightning has
opened a 3,500 square foot retail merchandise and entertainment center featuring
8 of the Company's simulators in the new Jordan Creek Town Center in West Des
Moines, Iowa, and a 4000 square foot site featuring 6 simulators at Gurnee
Mills, just north of Chicago, Illinois.

The Company recently established a new revenue stream through mobile leases that
management believes will be beneficial to the Company in the future. At the 2004
Daytona 500, Nextel debuted The Nextel Experience, a mobile fan interactive
experience that features six of the Company's race simulators. The Nextel
Experience has had and will have a prominent location at each of the NASCAR
Nextel Cup events for at least through the 2006 season. In 2004, Nextel also
leased a Mini-Experience housed in a 53 foot trailer. The Mini Experience
features two of the Company's racing simulators in a self contained package that
Nextel uses at various promotional activities. The Mini Experience has been such
a success that Nextel ordered and is now leasing two additional trailers that
they will use for promotional events around the country, each featuring two of
the Company's simulators.

The Company has made technological improvements to the simulation, resulting in
an enhanced racing experience. In addition, two popular racetracks, Bristol and
Indianapolis, were introduced to the simulation experience late in 2002 and
early in 2003. Other software improvements were implemented, including on-line
programs such as MySpeedway. MySpeedway is a feature on IMTS's website
(www.smsonline.com) that allows customers to find their recent lap times, and
analyze their results to improve their performance by comparing their times to
those of other racers throughout the country. Car parameters were introduced in
August 2003 allowing racers to set up their cars to their personal preferences.
Adjustable parameters include traction control, anti-lock brakes, spoiler angle,
steering ratio, front anti-roll bar, engine, transmission gearing, and rear end
ratio.

Technological improvements are currently under development. These include
upgrading and enhancing the game graphics, upgrading the underlying operating
system in order to accommodate future developments, and significant revenue
enhancing game features that target the Company's core customers. Other projects
include a smaller version of our patented motion platform that will allow more
customer throughput, a 3D version of our racing experience and a concept called
Wheel to Real where we recreate actual NASCAR races in graphic form using data
from the race cars for replay experiences and interactive features.

The Company has designed a new product for 2006 called the SMS Reactor. The
simulator is a downsized version of the current simulator, and has been designed
to be more portable, mobile and affordable. The Company has an initial order
from Burroughs and Chapin, and intends to complete the development and have the
initial units completed in time for the International Association of Amusement
Parks and Attractions (IAAPA) convention in at Atlanta in November. Management

<PAGE>

is optimistic about the prospects for this new product, although it is too early
to assure the success of the new product.

In order to meet the ongoing demand for the Company's simulators, the Company
has submitted purchase orders for 50 new race car simulator bodies and motion
base platforms with Elan Motorsports Technologies, and has taken delivery of 19
new simulators as of August 1, 2005. The manufacturing will be funded by a
combination of advance deposits due from customers and the financing that the
Company anticipates generating due to the Company's recent financial
improvements.

Overview of Financial Position and Results of Operations

During the six months ended June 30, 2005, the Company had total revenues of
$2,805,132 compared to $3,093,172 for the six months ended June 30, 2004, a 9.3%
decrease. Revenue from company store sales decreased by 55.25% as the company
executed its revised business plan focusing on revenue share locations versus
company owned locations. On a per store basis, the Company generated an average
of $320,191 per store on the eight to nine company store locations in the first
six months of 2004, compared with $484,411 per store on the two to three store
locations operating in the comparable period in 2005. Offsetting the decline in
total company store sales in the first six months ending June 30, 2005 was a
25.82% increase in revenue share sales, and a $1,225,801 swing in sales of
simulators as compared to the first six months ending June 30, 2004. The Company
recorded all or a portion of four sales transactions for fourteen simulators,
and added a five simulator revenue share location in Mentor, OH, a five
simulator revenue share location in Burlington, VT, and leased a 2 simulator
trailer during the six months ending June 30, 2005.

The Company again posted significantly improved year over year financial results
during the three months ending June 30, 2005. Although revenues decreased by
$354,128 for the three months ending June 30, 2005 as compared to the three
months ending June 30, 2004, cost of goods sold for the comparable periods
increased by $153,848. This was the result of the change in the mix of the
Company's revenue sources. Revenue from company stores and revenue share
locations have a higher gross margin that revenue derived from simulator sales.
Since over 41% of the Company's revenues came from the sale of simulator systems
in the three months ending June 30, 2005 as compared to zero sales from this
revenue stream in the same period in 2004, gross profit for the three months
ending June 30, 2005 fell by 36.32% as compared to the same period in 2004.

Offsetting the decrease in gross profit was the decline in year over year
operating expenses by 32.71%, resulting in a $101,590 operating profit
improvement for the quarter ending June 30, 2005 over the quarter ending June
30, 2004. The decline in operating expenses is a direct result of the
implementation of the company's revised business model, and is largely due to
the closure, relocation, or conversion to a revenue share site of seven former
company store locations. Payroll expenses declined 40.9% and occupancy expenses
declined 45.3% when comparing the second quarter 2005 to the second quarter
2004. Interest expense for the three months ending June 30, 2005 was $25,646 as
compared to $102,348 for the comparable quarter in 2004. The net loss for the
quarter ending June 30, 2005 of ($389,220) was $178,292 less than the ($567,512)
loss for the same quarter one year ago.

For the six months ending June 30, 2005, sales declined 9.3% as compared to the
six months ending June 30, 2004. Again, operating expenses declined at an even
faster rate, resulting in a 66.1%, or $616,592, decrease in the operating loss
for the six months ending June 30, 2005 as compared to the same period in 2004.
Payroll expenses declined 40.7% or $708,744, and occupancy expense declined
47.6%, or $558,501, when comparing the first six months of 2005 to the first six
months of 2004. As a result of the note payoffs the Company made early in the
first quarter, 2005, interest expense decreased from $155,321 for the six months
ending June 30, 2004 to $111,969 for the same period in 2005. The net loss for

<PAGE>

the first two quarters of 2005 of ($427,946) was 60.7% lower than the
($1,087,889) loss for the same six month period one year ago.

Since inception on May 31, 2001 and through June 30, 2005, the Company has
accumulated aggregate losses totaling ($6,853,732).

The Company's cash flow from operations deteriorated during the six month period
ending June 30, 2005 as compared to the comparable period in 2004. Cash
generated from operations for the six months ending June 30, 2005 declined by
$410,821 to ($781,017) as compared to the ($370,196) during the same six month
period in 2004. The cash requirements from the increases in accounts receivable
($204,775) and inventory ($97,346) were partially offset by the increase in
accounts payable ($131,802). Additionally, deposits on simulator sales decreased
by $383,249 due to the full or partial recording of four simulator sales
transactions in the first half of the year. Cash flow from all sources
(operations, investing activities and financing activities) was insufficient to
fund the company during the six months ending June 30, 2005, and resulted in a
$985,589 reduction in the Company's cash position. This compares with $44 in
cash used by all sources for the period ending June 30, 2004.

The Company has funded its retained losses through the initial investment of
$650,000 in May 2001, $400,000 of capital contributed in February 2002,
approximately $2.6 million received in August 2002 from the sale of Preferred
Stock, $700,000 borrowed in March 2003, $604,000 in net proceeds borrowed
between February 2004 and June 2004, $290,000 in net proceeds borrowed in June,
2005, $1.929 million received in the form of deposits for the placement of race
car simulators in revenue share locations, or for the future purchase by third
parties of race car simulators, and $1,089,654 by delaying payments to its
vendors.

Review of Consolidated Financial Position

Cash and Cash Equivalents: The Company had $349,084 in cash and cash equivalents
as of June 30, 2005 compared with $1,334,673 at December 31, 2004, a decrease of
$985,589. This decrease in the company's position of cash during the first six
months of 2005 was due to the reduction of customer deposits for simulator sales
as the revenue from four installations was partially or fully recognized. Also
contributing to the decline in the cash position was the increase in accounts
receivable as detailed below, and the increase in fixed assets. At June 30,
2005, the Company had taken delivery of 19 new simulators, and has either
installed or earmarked to install 15 of these simulators, leaving 4 available
for future opportunities. The Company has also taken delivery of 16 refurbished
simulators from closed or downsized sites, and has either installed or allocated
9 of these units to new sites, leaving 7 simulators for future opportunities.
The Company also has 15 simulators at Elan in various stages of refurbishment.

During the six months ended June 30, 2005, the Company used $775,189 of cash to
purchase property and equipment relating to the construction in progress on the
five sites where new simulators were installed in the first half of 2005, the
four new sites where installations will be occurring and the Myrtle Beach site.
Additionally, $588,996 of assets were either sold in four separate transactions,
or were transferred from work in process to fixed assets.

Additionally, the company had a net decrease in its debt at June 30, 2005 as
compared to December 31, 2004, as the $276,000 debt repayment in the first half
of 2005 was offset by an increase in the amount owed to an existing noteholder
in the second quarter of 2005. See further discussion under the "Liquidity and
Capital Resources" section below.

Trade Accounts Receivable: At the six months ending June 30, 2005, Checker Flag
Lightning was behind on payments in the amount of $551,809. The Company has
agreed to reduce the minimum revenue share payments from several of the Checker

<PAGE>

Flag stores, and Checker Flag has made payments covering June and July. The
owner of the mall at the Checker Flag location in Katy, TX did allow Checker
Flag to close the store, thus stopping a cash flow drain for Checker Flag. The
Company has removed its equipment from the location, and is reallocating the
simulators to other sites, or placing them in inventory for deployment in the
future. At the time of this filing, basic terms have been agreed to for a long
term solution with Checker Flag and with the owner of the malls where most of
the Checker Flag Lightning stores are located, and management believes a final
agreement will be reached in the near future to the benefit of all parties,
although there can be no assurance.

Inventory: At June 30, 2005, inventory increased by $97,346 from December 31,
2004 levels due primarily to the delivery of new and refurbished simulators from
Elan Motorsports for deployment to new sites. Simulators in inventory increased
by $111,376 from December 31, 2004 levels to $347,360 at June 30, 2005. The
value of simulator inventory at June 30, 2005 was down $77,834 from the March
31, 2005 level of $425,194. Merchandise inventory at June 30, 2005 of $19,917
also decreased as compared to the December 31, 2005 and March 31, 2005 levels.
This was due to the successful sales promotion the Company ran in conjunction
with NASCAR Day, the annual charitable promotion from NASCAR. Through its
promotion, the Company was able to give away 13 donated Gibson Les Paul guitars
signed by four NASCAR drivers, and donated approximately $20,000 to NASCAR for
its sponsored charities.

Notes Payable: Pursuant to the Note and Option Purchase Agreement and Security
Agreement dated February 2, 2004 ("Agreement"), the Company issued notes bearing
an interest rate of 9.6% payable in the total amount of $750,000. These notes
were issued between February 2, 2004 and June 6, 2004. Each note came with an
option to purchase common shares of the Company equal to the amount of notes
purchased divided by the fair market value of the Company's stock on the date of
issuance. The notes became due on February 2, 2005, and $260,000 of the notes
was paid in full at that time. The note holder of an additional $344,000 of the
notes has received $16,000 in cash and has elected to exercise most of the
options granted with the note purchase for full payment of the notes per the
terms of the Agreement. The conversion of the options to common stock occurred
in the third quarter of 2005, and thus is not reflected in the financial
statements as of June 30, 2005. The note holder of the final $146,000 in notes
has agreed to extend the maturity date of their note to December 31, 2005, with
the expiration of the accompanying option to February 1, 2006.

The value of the options were amortized to interest expense over their life
which expired March 1, 2005. Amortization of option discount of $51,812 was
included in interest expense for the six months ended June 30, 2005.

In March 2003, the company issued notes totaling $700,000, $500,000 of which was
sold to Ropart Asset Management. During the three months ending March 31, 2005,
the Company reduced its indebtedness to Ropart Asset Management by $200,000, and
the maturity of the note was extended to September 30, 2005. In June, 2005, the
Company borrowed an additional $300,000 from Ropart Asset Management under the
same terms as the original 2003 Bridge Loan agreement. The maturity date of the
note was also extended to December 31, 2005.

Deposits on Simulator Sales: The Company records the sale of simulators using
the percentage of completion method of accounting. The percentage of completion
for any given sales contract is determined by the ratio of costs incurred to
date to the total estimated cost for each site build. Costs incurred consist of
purchased components, outside services, and outside contract labor cost. During
the six month period ending June 30, 2005, the Company recorded all or a portion
of four simulator sales transactions based on the percentage of

<PAGE>

completion method of accounting, and added a five simulator revenue share site,
and a two simulator trailer lease. This activity resulted in the reduction of
deposits on simulator sales of $383,249 to $1,190,729 as compared to the balance
at December 31, 2004.

Other Liabilities: Accounts payable, accrued payroll and payroll taxes, sales
taxes payable, unearned revenue, and other accrued expenses fluctuate with the
volume of business, timing of payments, and the day of the week on which the
period ends.

Review of Consolidated Results of Operations

During the six months ended June 30, 2005, the Company had total revenues of
$2,805,132 compared to $3,093,172 for the six months ended June 30, 2004, a 9.3%
decrease. Revenue from company store sales decreased by 55.25% as the company
executed its revised business plan focusing on revenue share locations versus
company owned locations. On a per store basis, the Company generated an average
of $320,191 per company store location in the first six months of 2004. The
Company began the period with nine stores, converted one during the period into
a revenue share location, and ended the period with eight stores. This compares
with $484,411 per company store location operating in the comparable period in
2005. The Company began the period with three stores, closed one during the
period, and ended the period with two stores. Offsetting the decline in total
company store sales in the first six months ending June 30, 2005 was a 25.82%
increase in revenue share sales, and a $1,225,801 swing in sales of simulators
as compared to the first six months ending June 30, 2004. The Company recorded
all or a portion of four sales transactions for fourteen simulators, and added a
five simulator revenue share location in Mentor, OH, a five simulator revenue
share location in Burlington, VT, and leased a two simulator trailer during the
six months ending June 30, 2005.

The Company once again posted significantly improved year over year financial
results during the three months ending June 30, 2005. Although revenues
decreased by $354,128 for the three months ending June 30, 2005 as compared to
the three months ending June 30, 2004, cost of goods sold for the comparable
periods increased by $153,848. This was the result of the change in the mix of
the Company's revenue sources, with revenue from company stores and revenue
share locations having a higher gross margin than revenue derived from the sale
of simulators. Since over 41% of the Company's revenues came from the sale of
simulator systems in the three months ending June 30, 2005 as compared to zero
sales from this revenue stream in the same period in 2004, gross profit for the
three months ending June 30, 2005 fell by 36.32% as compared to the same period
in 2004.

Offsetting the decrease in gross profit was the decline in year over year
operating expenses by 32.71%, resulting in a $101,590 operating profit
improvement for the quarter ending June 30, 2005 over the quarter ending June
30, 2004. The decline in operating expenses is a direct result of the
implementation of the company's revised business model, and is largely due to
the closure, relocation, or conversion to a revenue share site of seven former
company store locations. Payroll expenses declined 40.9% and occupancy expenses
declined 45.3% when comparing the second quarter 2005 to the second quarter
2004. Interest expense for the three months ending June 30, 2005 was $25,646 as
compared to $102,348 for the comparable quarter in 2004. The net loss for the
quarter ending June 30, 2005 of ($389,220) was $178,292 less than the ($567,512)
loss for the same quarter one year ago.

For the six months ending June 30, 2005, sales declined 9.3% as compared to the
six months ending June 30, 2004. Again, operating expenses declined at an even
faster rate, resulting in a 66.1%, or $616,592, decrease in the operating loss
for the six months ending June 30, 2005 as compared to the same period in 2004.
Payroll expenses declined 40.7% or $708,744, and occupancy expense declined
47.6%, or $558,501, when comparing the first six months of 2005 to the first six
months of 2004. As a result of the note payoffs the Company made early in the
first quarter, 2005, interest expense decreased from $155,321 for the six months
ending June 30, 2004 to $111,969 for the same period in 2005. The net loss for
the first two quarters of 2005 of ($427,946) was 60.7% lower than the
($1,087,889) loss for the same six month period one year ago.
<PAGE>

Liquidity and Capital Resources

The primary source of funds available to the Company are receipts from customers
for simulator and merchandise sales in its two owned and operated racing
centers, percentage of gross revenues from simulator races and minimum
guarantees from revenue share and lease sites, the sale of simulators, proceeds
from equity offerings including the $2,610,050 received in August 2002, proceeds
from debt offerings including the $700,000 in Secured Bridge Notes and warrants
issued in March 2003, the $604,000 in net proceeds from Notes and options issued
between February and June, 2004, the additional loan of $300,000 from one of the
existing Bridge Loan note holders, loans from shareholders, credit extended by
vendors, and possible future financings.

As of the filing of this Form 10-QSB, the net proceeds of $1,874,708 from the
three sales transactions for the sale of 44 simulators to Race Car Simulation
Corp. have been depleted. The Company believes that it has generated a
significant interest in its simulators, and that some combination of revenue
share agreements, lease agreements and simulator sales agreements will be
sufficient to fund the daily operations of the business, although there can be
no assurances. Additionally, the Company continues to seek manufacturing
financing required to fully implement the desired level of growth management
believes its revised business model is capable of generating. The Company's
ability to raise the desired financing will depend on many factors, but the
Company intends to leverage the market value of its assets as collateral.
Management believes the culmination of the recent negotiations with Checker Flag
Lightning into an agreement allowing for cash flow to again be generated from
the Checker Flag sites, combined with some combination of simulator sales and
the increased revenues that come from additional third party revenue share and
lease agreements will allow the Company to maintain and increase positive EBITDA
and regain profitability, although there can be no assurances.

Management is optimistic that the new SMS Reactor will be attractive to
customers seeking a lower priced simulator with greater mobility and
portability. The SMS Reactor is scheduled to debut at the 2005 IAAPA convention,
in time for 2006 installations.

On December 31, 2004, March 31, 2005 and April 15, 2005, the Company entered
into three Asset Purchase Agreements pursuant to which it sold forty-four (44)
of its race car simulators that were located in existing revenue share
locations, or have been installed in new revenue share sites. While this
transaction generated an aggregate purchase price of $2,856,600, it also
depleted monthly revenue share payments to the Company generated by the
simulators that were sold. Management intends to contract with revenue share
partners and install simulators within its inventory to replenish the cash flow
lost from 34 of the 44 simulators that were sold in a timely manner, although
there can be no assurances. To this end, the Company has installed a five
simulator site in Burlington, VT, a five simulator site in Mentor, OH, and has
delivered a two simulator trailer to a lessee. Thirteen additional simulators in
four new locations are scheduled for installations pursuant to either revenue
share, lease or purchase agreements.

During the six months ended June 30, 2005, the operating activities of the
Company used net cash of $781,017 compared to net cash used of $370,196 for the
comparable period in 2004. The cash requirements from the increases in accounts
receivable and inventory were partially offset by the increase in accounts
payable. Additionally, deposits on simulator sales decreased due to the
recording of four simulator sales transactions in the period ending June 30,
2005.

During the six months ended June 30, 2005, the Company used $775,189 of cash in
investing activities compared with $183,848 of cash used in investing activities
during the comparable period in 2004. The purchases in property and equipment
relates primarily to the construction in progress on the five sites where new
simulators were installed in the first half of 2005, the four new sites where
installations will be occurring and the Myrtle Beach site. Additionally,
$588,996 of assets were either sold in four separate transactions, or were
transferred from work in process to fixed assets.
<PAGE>

During the six months ended June 30, 2005, the Company used $18,379 of net cash
in financing activities, compared with the $554,000 the Company generated in the
comparable period in 2004. As detailed above, the Company repaid $281,621 in
debt obligations during the six month period ending June 30, 2005, but also
borrowed an additional $300,000 during the same period. Additionally, the
Company negotiated a settlement with one of its landlords for the payment of
rent in arrears over a 12 month period. The settlement amount was transferred
from accrued expenses to notes payable. The Company will continue to use the
debt markets to raise sufficient financing to fund its growth opportunities as
it continues to focus on revenue share and simulator sales opportunities.

The Company's current debt financing includes the extension of $350,000, plus
the addition of $300,000 of the Secured Bridge Notes and Warrants initiated in
March of 2003 until December 31, 2005, and an extension of a Note and Option
Agreement of $146,000 until December 31, 2005.

As of June 30, 2005, the Company had cash and cash equivalents totaling $349,084
compared to $1,334,673 at December 31, 2004. Current assets totaled $1,347,442
at June 30, 2005 compared to $2,058,820 on December 31, 2004. Current
liabilities totaled $4,176,678 on June 30, 2005 compared with $4,618,647 on
December 31, 2004. As such, these amounts represent an overall decrease in
working capital of $269,409 for the six months ending June 30, 2005.



ITEM 3. Internal Controls and Procedures

The Principal Executive Officer ("PEO") and the Principal Financial Officer
("PFO") of the Company (currently one individual) have evaluated the
effectiveness of its disclosure controls and procedures (as defined in Rule
13a-14 of the Exchange Act) within 90 days prior to the filing of this report.
Based on that evaluation, the PEO and PFO have concluded that the Company's
disclosure controls and procedures are adequate and effective. There have been
no significant changes in the Company's internal controls, or in factors that
could significantly affect internal controls, subsequent to the most recent
evaluation of such controls.






<PAGE>



                                     PART II

Item 1.  Legal Proceedings

From time to time, the Company may be party to various legal actions and
complaints arising in the ordinary course of business. As of June 30, 2005 and
as of the filing of this Interim Report on Form 10-QSB, the Company is not aware
of any material legal actions directed against the Company.

Item 2.  Unregistered Sales of Securities and Use of Proceeds

On April 15, 2005, the Company sold Warrants for cash consideration of $39.269.
The Warrants enable the holder to purchase 900,000 shares of IMTS stock for $.10
per share. Proceeds from the sale were used for working capital.

Item 3. Defaults Upon Senior Securities

None, not applicable.

Item 4. Submission of Matters to a Vote of Security Holders

None, not applicable.

Item 5.  Other Information

None, not applicable.

Item 6.   Exhibits and Reports on Form 8-K

A. Exhibits.

   10.1     Form of Note and Option Purchase Agreement and Security Agreement **
   10.2     Form of Procurement Contract **
   10.3     Form of Master Revenue Sharing Agreement**
   10.4     Asset Purchase Agreement with Race Car Simulation Corporation,
            a portfolio company of Dolphin Direct Equity Partners, LP ***
   11.1     Computation of Earnings (Loss) Per Share
   31.1     Certification of William R. Donaldson as Chief Executive Officer and
            Chief Financial Officer pursuant to Rule 13a-14 of the Security
            Exchange Act of 1934.
   32.1     Certification of William R. Donaldson as Chief Executive Officer
            pursuant to 18 U.S.C. Section 1350.
   32.2     Certification of William R. Donaldson as Chief Financial Officer and
            Treasurer pursuant to 18 U.S.C. Section 1350.

   * Incorporated by reference from Form 10-QSB filed on November 14, 2002
   ** Incorporated by reference from Form 10-QSB filed on May 17, 2004
   *** Incorporated by reference from Form 8-K filed on January 6, 2005



B. Reports on Form 8-K.

                  None, not applicable.



<PAGE>



                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                 INTERACTIVE MOTORSPORTS AND ENTERTAINMENT CORP.

 Date: August 19, 2005         By:       /s/ William R. Donaldson
                               -----------------------------------------------
                               William R. Donaldson
                               Chairman of the Board and Chief Executive Officer


Pursuant to the requirements of the Securities Exchange of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.


Date: August 19, 2005          By:       /s/ William R. Donaldson
                               -----------------------------------------------
                               William R. Donaldson
                               Chairman of the Board and Chief Executive Officer
                                       (Principal Executive Officer)

Date: August 19, 2005          By:       /s/ William R. Donaldson
                               -----------------------------------------------
                               William R. Donaldson
                               Chairman of the Board and Chief Executive Officer
                                       (Principal Financial Officer)



<PAGE>



                                  EXHIBIT INDEX

Exhibits:

         11.1     Computation of Earnings (Loss) Per Share
         31.1     Certification of William R. Donaldson as Chief Executive
                  Officer and Chief Financial Officer pursuant to
                  Rule 13a-14 of the Security Exchange Act of 1934.
         32.1     Certification of William R. Donaldson as Chief Executive
                  Officer pursuant to 18 U.S.C. Section 1350.
         32.2     Certification of William R. Donaldson as Chief Financial
                  Officer and Treasurer pursuant to 18 U.S.C.Section 1350.